Jaguar Mining Inc (TSX: JAG) operates in gold mining and is engaged in the acquisition, exploration, development, and operation of gold-producing properties in Brazil. 

Key Highlights:

• Q4FY21 and FY21 important updates:

1. For Q4FY21, the company reported its gold production of 22,903 ounces, up 2% on y-o-y basis. FY21 Annual production stood at 83,878 ounces, reflecting a slide of 8% on y-o-y basis.
2. The company conducted 80,043 meters of diamond drilling activities in FY21, which was 17% higher than 68,397 meters in FY20.
3. The company paid a total dividend of USD 2.3 million in Q4FY21.

• Surge in dividend payment: In 9MFY21, the company reported a surge in the dividend payment of USD 11.6 million, which is significantly higher than USD 4.3 million in pcp. Moreover, the stock of JAG is carrying an annualized dividend yield of ~3.563%, which looks impressive considering the futuristic interest rate scenario.

• Robust profitability margins: At the end of Q3FY21, the company reported higher profitability margins as compared to the industry median, which is a key positive and indicates higher operational efficiencies. Notably, EBITDA margin and operating margin stood at 44.5% and 31.4%, respectively, in Q3FY21 as compared to the industry median of 38.7% and 27%. Moreover, the company’s net margin stood higher at 28%, as compared to the industry median of 12.9%.

Q3FY21 Financial Highlights: (in thousands of USD)

Q3FY21 Income Statement Highlights (Source: Company Report)

• In Q3FY21, the company reported a decline in its revenue of USD 40.7 million, as compared to USD 43.4 million in pcp. The slide was primarily due to an 8% decrease in average realized gold price from USD 1,896/oz in Q3FY21 to USD 1,753/oz in Q3FY20.

• Operating costs and depreciation expenses stood higher in Q3FY21, resulting in a slide in gross profit to USD 15.7 million from USD 25.7 million in pcp.

• The quarter was marked by higher exploration and evaluation costs and a surge in legal, recoverable tax and other provisions expenses, coupled with slightly higher care and maintenance costs. This was partially offset by significantly lower other operating expenses (USD 3 million in Q3FY21 v/s USD 1,097 million in pcp) and lower stock base compensation costs. Operating income stood lower at USD 12.7 million from USD 21.9 million in pcp.

• Net income was recorded at USD 11.4 million in Q3FY21, as compared to USD 16.5 million in pcp due to a lower operating income, partially offset by a foreign exchange gain of USD 2.1 million v/s a loss of USD 0.2 million in pcp.

Risks: Volatility in the international commodity prices are likely to dampen the realization of the company. Moreover, the company registered a lower gold production in FY21, and if the trend continues further,it is likely to impact the company’s upcoming performance. 

Valuation Methodology (Illustrative): Price to CF Based

Analysis By Kaline Group

Stock Recommendation:

For FY22, the company expects its total production in between 86,000 to 94,000 ounces, while its All-in sustaining cost (AISC) is expected in between USD 1150 to USD 1250/ oz. The company reported its cash conversion period of 26.4 days in Q3FY21, significantly lower than the industry median of 52 days. This indicates that the company requires lower time to convert its investments to cash flows. We have valued the stock using the Price to Cash flow-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Karora Resources Inc, Mandalay Resources Corp, and Hochschild Mining PLC. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock on the closing price of CAD 4.65 on February 23, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on February 23, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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